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Nokia Has Multiple Avenues To Profit From 5G

Rajeev Suri, president and chief executive officer of Nokia Oyj, gestures while speaking during a... [+] special event ahead of the Mobile World Congress (MWC) in Barcelona, Spain. Photographer: Angel Garcia/Bloomberg

Wireless behemoth Nokia is betting on next-generation 5G technology to drive growth, after posting mixed results over the last few years amid intense competition from Chinese equipment manufacturers and weaker infrastructure spending by telecom companies. Although 5G investments are not expected to match investments in the peak of the 4G cycle in the near term, the uptake of the technology is likely to remain crucial to the industry over the long run. Below we take a look at how Nokia is poised to benefit from 5G going forward.

Operators across the world have been outlining plans for their 5G upgrades, with U.S. carriers planning for commercial deployments of the technology as early as the end of this year, Other regions including South Korea, China, Japan and the Middle East are expected to commence their build-outs from 2019. Market research firm the Dell’Oro Group has projected that the radio access network market will post a positive five-year compound annual growth rate, marking the first time it has forecast an increase in the metric over the last seven years. Scoring early wins is crucial for equipment providers, as the technology is expected to have a relatively long life cycle, and Nokia has been executing fairly well in this front. For instance, the company bagged a $3.5 billion deal with T-Mobile to provide end-to-end 5G solutions including technology, software and services. Moreover, being a European company, it could also have a leg up over Chinese players such as Huawei and ZTE, which face regulatory hurdles in Western markets amid fears that they could give backdoor access to the Chinese government. For instance, there have been reports that Huawei could be banned from supplying equipment for Australia’s 5G buildout.

Besides core RAN sales, the company is also likely to have other avenues to bolster its profitability via 5G. Firstly, licensing could be a meaningful revenue driver, as Nokia holds a significant amount of IP related to 5G technology (as do Ericsson, Huawei and Qualcomm). Nokia has indicated that it would charge a maximum of 3 euros (about $3.50) per handset in royalties for 5G phones. Separately, there is a possibility that 5G could help transform the Services businesses, which has traditionally been a relatively high revenue, low-margin play due to the high manpower costs involved. Over the first half of this year, global services accounted for 29% of Nokia’s total network division sales at about EUR 2.57 billion (about $3 billion), although operating margins barely broke even. With 5G, it’s possible that the faster network speeds coupled with advances in software could allow companies to better manage networks remotely, without having to send an engineer on site.

Led by MIT engineers and Wall Street analysts, Trefis (through its dashboards platform dashboards.trefis.com) helps you understand how a company's products, that you

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Led by MIT engineers and Wall Street analysts, Trefis (through its dashboards platform dashboards.trefis.com) helps you understand how a company's products, that you touch, read, or hear about everyday, impact its stock price. Surprisingly, the founders of Trefis discovered that along with most other people they just did not understand even the seemingly familiar companies around them: Apple, Google, Coca Cola, Walmart, GE, Ford, Gap, and others. This might include you though you may have invested money in these companies, or may have been working with one of them for years as an employee, or have consulted with them as an expert for a long time. You can play with assumptions, or try scenarios, as-well-as ask questions to other users and experts. The platform uses extensive data to show in a single snapshot what drives the value of a company's business. Trefis is currently used by hundreds of thousands of investors, company employees, and business professionals.